Prediction for Q3: 9 Reasons for a New Bull Market

Written By Christian DeHaemer

Updated May 15, 2024

Since the market's nadir in October 2022, the S&P 500 has bounced back by 28%. Historical trends show that after nine months past a significant bear market low, the S&P has risen a year later in 12 out of 13 instances since 1946. The single exception occurred in 1982 when the S&P declined by 3.5% a year later.

The current rally has surpassed the customary 20% rally required to signal a bull market. From a historical perspective, we're about one-third of the way into this new bull market with an average bull market gain of 114%, indicating considerable growth potential from this point forward.

The Charts

Analyses of market internals and technicals still present a bullish outlook. Despite being overbought in the short term, the S&P's uptrend channel indicates the potential for a long-term upward trajectory. Importantly, both the industrial and technology sectors — critical components of the present economy due to the ongoing infrastructure boom and advancements in AI — have recently scaled new all-time highs.

In this bull market, the tech-centric Nasdaq Composite has outperformed other major U.S. indexes, recording over 20% growth above its long-term, 200-day moving average.

Inflation Under Control

The Federal Reserve has been fighting inflation all year, and it’s working. Year on year, the headline consumer price index (CPI) has declined for a record 12 months straight and is now down to 2.97%. 

The producer price index (PPI) has done even better, dropping to 0.1% year on year. Historically, rapid decreases in CPI have been beneficial for the S&P in subsequent months and years.

Homebuilders Are Rocking

Homebuilders, a key component of growth, have experienced a 50% increase in stock price this year and reached all-time highs on July 14. Earnings from D.R. Horton (NYSE: DHI) this week exceeded estimates, with builders reporting significant beats on unit orders, homes closed, and substantial backlog declines since the start of June. The backlog built during the housing market boom of 2020 and 2021 is gradually reducing, signifying improved supply chain efficiency.

Those predicting a housing market crash have been dead wrong.

Just for Fun, He Said, “Get a Job”

Meanwhile, job growth in the U.S. has slowed from the 2021 boom period. However, at around 200,000 new jobs per month, the economy is still progressing and generating employment faster than population growth. The trend is one of fewer job openings but consistent job creation. In other words, it is a healthy labor market.

Recession Boogeyman

Permabears have been pointing to the inverted yield curve and predicting a recession for about 18 months now. However, it's possible that the U.S. economy already experienced a "phantom" recession in the first half of 2022, which the National Bureau of Economic Research (NBER) didn't officially declare due to a still-strong job market.

Earnings Up

Earnings estimates for the S&P 500 have shown positive signs after a sharp fall from mid-2022 through Q1 2023. Over the last few months, these estimates have been gradually increasing as companies consistently deliver better-than-expected results, a favorable sign for market health.

Dollar Down

The U.S. dollar rallied during the pandemic as global investors sought safety. This acted as a headwind for large U.S. multinationals throughout 2022's bear market. However, when the market bottomed last October, the dollar also peaked. You might remember that I was pushing Mexican and Colombian equities at this time to take advantage of the new trend.

Regardless, this new downward trend in the dollar serves as a boost for U.S. multinational companies, a major component of the S&P 500 as well as emerging markets.

Artificial Intelligence

The 2023 bull market will be called the AI boom. Major companies are heavily investing in AI to stay competitive, which will likely continue to support the equity market. In my Launchpad Trader service, I’ve recommended a number of AI companies, with gains of 44%, 70%, and 53% in just a few months.

AI might not be as big as the internet in 1998, but it will sure as heck be bigger than 3D printing.

What It Means

The current market trajectory certainly seems to signal the arrival of a new bull market as various factors — including the Federal Reserve's successful inflation control, strong homebuilder performance, a healthy job market, and booming AI interest — provide a strong foundation for sustained economic growth.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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